Jul 15, 2009
By: Barbra Murray, Contributing Editor

Like so many real estate companies, ProLogis isn't developing spec projects these days, but build-to-suits are a different story. The Denver-based global industrial REIT just agreed to develop a 554,000-square-foot distribution center in The Netherlands for Hi-Logistics, and if ProLogis has anything to do with it, more build-to-suit transactions will materialize.

The new facility for Hi-Logistics, a subsidiary of LG Electronics, will be located 60 miles south of Amsterdam in the City of Oosterhout, one of The Netherlands' top logistics hubs. The building will be erected on a 20-acre parcel of land that is already part of ProLogis' portfolio. Construction is scheduled to reach completion in spring 2010, and the logistics concern will occupy the facility under a long-term lease with ProLogis. And there's ample room if Hi-Logistics opts to expand or if another company decides to establish a new locale at the Oosterhout site, as the property can accommodate an additional 431,000 square feet of distribution space. ProLogis is already one of The Netherlands' top providers of distribution space, offering a portfolio of properties totaling 7.1 million square feet.

Victimized by the consequences of the economy's downward spiral, ProLogis announced in October 2008 that it would halt new development starts and focus on preserving capital and decreasing risk to the company. The Hi-Logistics build-to-suit project dovetails perfectly with the REIT's new strategy. "What makes the Hi-Logistics project a little less risky for us is using our land bank, which is a good example of how we can generate income on an otherwise non-income producing asset," a ProLogis spokesperson told CPN. "And in an effort to reduce risk even further, we're planning to contribute this project to ProLogis European Property Fund II, and at a pre-committed value."

Hi-Logistics' distribution center is the second build-to-suit ProLogis has committed to this year; the company announced in February a 200,000-square-foot build-to-suit distribution center project in Northampton, England for the U.K'.s postal service, Royal Mail. "Something we're looking at now is how we approach development going forward," the spokesperson said. "We'll approach it now with a lower amount of risk and a less capital intensive investment structure. We may develop within joint ventures and property funds with less of our overall capital invested to reduce risk. And we will have a greater focus on build-to-suits and pre-committed developments, and will engage in more for-fee business. We won't be doing any spec development for the foreseeable future."

ProLogis is hardly alone in its plan to avoid spec projects for the time being. Last week, The Alter Group revealed it would acquire the 180-acre King Mill site in suburban Atlanta and build an industrial park of up to 3 million square feet build-to-suit space--with nary a square-foot of spec development in the picture.

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